Why Is Organizational Structure Important?

There are a number of factors that differentiate small-business operations from largebusiness operations, one of which is the implementation of a formal organizational structure. Organizational structure is important for any growing company to provide guidance and clarity on specific human resources issues, such as managerial authority. Small-business owners should begin thinking about a formal structure early in the growth stage of their business.

Purpose
Organizational structure provides guidance to all employees by laying out the official reporting relationships that govern the workflow of the company. A formal outline of a company's structure makes it easier to add new positions in the company, as well, providing a flexible and ready means for growth.

Significance
Without a formal organizational structure, employees may find it difficult to know who they officially report to in different situations, and it may become unclear exactly who has the final responsibility for what. Organizational structure improves operational efficiency by providing clarity to employees at all levels of a company. By paying mind to the organizational structure, departments can work more like welloiled machines, focusing time and energy on productive tasks. A thoroughly outlined structure can also provide a roadmap for internal promotions, allowing companies to create solid employee advancement tracks for entry-level workers.

Flat Organizational Structure

There are relatively few layers of management in what is termed a flat organizational structure. In a flat structure, front-line employees are empowered to make a range of decisions on their own. Information flows from the top down and from the bottom up in a flat structure, meaning communication flows from top-level management to frontline employees and from front-line employees back to top management.

Tall Organizational Structure

There are numerous layers of management in a tall organizational structure, and often inefficient bureaucracies. In a tall structure, managers make most operational decisions, and authority must be gained from several layers up before taking action. Information flows are generally one-way in a tall structure from the top down.

Considerations
It is common for small businesses to lack a solid organizational structure. All employees in startup companies can be required to perform a range of tasks outside of

their official job descriptions, and a good number of employees in startups have generous leeway in making decisions. Aside from that, all employees in a startup generally know who they report to, since it is usually a single person or group the owner or partners. It is very important to have a formal organizational structure in place before your company grows so large that your workforce becomes unwieldy.

Planning Organizational Structure

With a number of organizational structure options for running your business, choosing one represents an important step in getting your business up and running. The election of a specific organizational structure provides a focus for current and future plans related to management, operations and finances.

Function
Organizational structure provides a hierarchy for handling problems, making decisions and taking action. An organizational structure helps a usiness establish a recognized chain of authority. Consider a business choice of organizational structure a road map for hiring employees and future expansion. Creating job titles and establishing job duties and responsibilities represents a natural flow of events after a business chooses an organizational structure.

Significance
A corporations chosen organizational structure impacts several every day and customary business decisions and responsibilities. Tax implications abound depending on the type of organizational structure chosen. For instance, a sole proprietor claims business income on their personal income tax returns, while a corporation reports income twice essentially, once for the company and again at the individual level for owners and shareholders. Other implications exist when it comes to laying down plans for the future, such as owner succession protocols.

Types
Various types of organizational structure exist. Some offer a particular advantage to individual business owners and small companies, while other structures offer specific protection of your personal assets through limited liability clauses. Sole proprietorship, general partnership, corporation and limited liability company represent some of the most common types of organization structures available to business owners.

Facts
In regards to the various types of organization structures certain facts remain that may help direct you towards choosing the appropriate one for your new venture. According to the U.S. Small Business Administration, the majority of small business owners choose to start out as sole proprietors. Sole proprietors have complete control over their business. They make changes without input from others and perhaps have

the easiest route to go as far as filing income taxes and making decision related to investments in the business. The formation of a corporation results in the creation of a unique entity. This means that the business itself can be taxed, sued and can take out loans and apply for credit. Investigate all the parameters, pros and cons, of an organizational structure before making a final decision.

Considerations
Take into account several factors when arriving at a decision on choosing an organizational structure for your business. Future plans related to growth, vulnerability to liability lawsuits and your capacity to work with others should all factor into your decision. Lay out the rules with in a formal agreement, such as a partnership agreement, before starting a business with friends or individual investors. Consult an attorney for guidance.

Proper Organizational Structure

There are many factors that go into determining a company's proper organizational structure. For example, sometimes proximity is important in developing an organizational structure. Therefore, a company will adopt a geographical organizational structure to better service regional customers. Sales forces are often centered around geographical structures. Marketing departments may also be decentralized because customer preferences vary greatly by region. Proper organizational structure can also vary between companies of various sizes.

Significance
A flat organizational structure may be the proper one for a small company. Small companies typically have very few levels of management. Therefore, most employees are only several levels down from the president or CEO. Additionally, larger companies may require a taller organizational structure. Numerous managers may be needed to manage various project tasks. For example, an advertising vice president may oversee the budget, but he may delegate the ad schedule to the advertising director.

Identification
Sometimes, a customer- or market-oriented organizational structure is appropriate. Companies that service a diverse group of customers may need to structure their organization by customer type. For example, a small electronic payment company may offer services to consumers, corporations, financial institutions and health clubs. Consequently, the owner may deem it proper to have a separate sales, marketing and financial management team for each customer type.

Types
"Functional" and "product" are two major organizational structure types. A functional organizational structure may be the proper one to use if a company needs to

efficiently group knowledge, skills and resources. Consumer products companies often have management teams reporting to vice presidents of marketing, finance, accounting and engineering. Grouping marketing people together creates the synergism of experience necessary for evaluating a new advertising campaign. A product organizational structure may be the proper one to use for companies that sell a variety of products. For example, department stores often divide departments by housewares, sporting goods and women's clothing. Product expertise is important for companies that use product organizational structures.

Benefits
There are inherent benefits in using the proper organizational structure. Larger companies may enhance the decision-making process by organizing their company by function. For example, marketing people would make decisions related to marketing research and product management. Additionally, the financial team would oversee the budgets of all departments. Communication may also be the impetus behind a proper organizational structure. Smaller companies may want to maintain an "open door" policy between executives and lower-level employees. Small companies are often constantly dependent on high levels of feedback as the company grows.

Considerations
A matrix organizational structure may be the proper one for ad hoc or temporary projects. Matrix organizational structures combine two or more organizational structures. Companies will sometimes create a hybrid organizational structure combining both functional and product-oriented duties. For example, a small dairy company may develop a cross-functional team to manage a new product introduction.

Indications of an Ineffective Organizational Structure

Your organizational structure is what maintains the hierarchy in your organization, facilitates communication and keeps your organization running smoothly. Effective leadership and strong organizational structure are more important to the success of a company than technology, according to the International Institute of Management. In order to address an ineffective organizational structure, you first need to learn to identify the signs of a failing company framework.

Breakdown in Communication
If departments are no longer efficiently sharing information and processing data as they should be, then that is a problem with organizational communication. One of the causes of a breakdown in company communication is that departments have begun to act on their own. There are many reasons why this could happen including a lack of trust between departments, the feeling by one department that another department is incapable of performing its job or incompetent management in the departments. The

departments bypass the organizational structure and communication begins to break down.

Quality Control Issues

Organizational structure comes with a series of checks and balances that are designed to perform certain levels of quality control. The engineering department and the marketing department work together to create instruction manuals for products that the general public can use. Accounting works with sales to discuss client accounts and keep sales moving. When the organizational structure begins to deteriorate, these checks and balances will stop. The marketing group starts to create instruction manuals without extensive input from the marketing group and information gets left out. If quality control is becoming an issue, it may be because the organizational structure is breaking down.

Low Morale
When departments are not communicating and individuals within those departments are getting reprimanded, morale in the company will begin to suffer. Employees start to ignore the organizational structure because of fear of discipline, they do not trust their manager or they no longer feel included in the overall success or operation of the company. In some cases employees may have multiple managers due to a breakdown in the company hierarchy, and this will cause confusion, according to employment expert Joan Lloyd writing on the Job Dig website. An alienated workforce with low morale is a product of a failing organizational structure.

Customer Service
An ineffective corporate structure sometimes lacks the ability to monitor interactions with the customers. If the sales group is not required to report customer issues to the customer service group, then the customer service people will be unaware of the problem if it should occur again. In an ineffective organizational structure, there is no cohesive way of handling customer issues. When customers contact the company, they may get three different answers if they talk to three different people. This causes a problem with customer retention and ongoing revenue. If you notice that your company is having a difficult time holding on to clients, you will want to check your organizational structure for problems

The Importance of a Correct Organizational Structure

No single correct organizational structure fits every business. Many small businesses have a centralized organizational structure, with the owner making all the decisions. If there are only a few employees, this can work well. Once the business begins to grow larger and more employees are added, a new structure may be needed. Choosing and using the correct organizational structure for your business can ensure you achieve maximum profitability.

Process
To determine the correct organizational structure for your business, you should first develop a strategic plan. According to investment experts Charles Schwab, developing a strategic plan is a continuing process that may require you to adapt your organizational structure to changing business conditions. To determine whether your organizational structure is correct, you can survey your employees to determine if their operational and career development needs are being met. Your structure may also be incorrect if your profits are flat or declining, if client or employee satisfaction has decreased or if your growth plans have changed.

Types
The most popular type of organizational structure is a functional structure. In a functional structure, the business is organized into departments, such as sales, accounting, production and so forth. Each department has a department head and several managers who report to the department head, while the department heads report to the CEO of the company. This type of structure may be correct for large companies, as it helps the business take advantage of economies of scale. It may also be correct for businesses concerned with maintaining management stability and efficiency. It may not be suitable for smaller companies, where employees can lose motivation if there are too many layers of communication, or for companies that already have poor internal communication and conflict between departments.

Considerations
A divisional structure may be appropriate for businesses that want to be able to react quickly to changing business environment and grow a workforce with broad skills. In a divisional organization, each product line, geographic area or marketing area has its own division, and people with similar skills are placed in different divisions. For example, Boeing uses a divisional structure: The company is divided into a commercial division, a military division and a private aviation division. Each division has its own accounting department, sales team, research and production teams and human resources department.

Function
A matrix structure may be correct for smaller companies and those that want to emphasis efficiency, creativity and innovation. It may not be a good structure to use in a company where employees are uncomfortable with not having a clear chain of command. A matrix structure involves no set divisions or departments. Employees may develop their own projects and assemble a team to work on them. Or the company may be organized around customers, with different groups assigned to different customers.

Potential
For businesses in the IT or high-tech sectors, it is important to use an organizational structure that can adapt to a rapidly changing business environment. For these

businesses, a horizontally linked structure may be correct. In this structure, employees are grouped into three basic areas: planning, building and running. For example, employees involved in research, development and finance may be grouped into the planning department. They are responsible for developing new projects. Employees with design and manufacturing skills would be grouped into the building department, and a third department will be responsible for maintaining, marketing and selling products.

Organizational Structure and Culture Change

Examining the relationship between organizational structure and culture change hinges on two premises: First, an organizational culture develops around the organizational structure, and a culture change will be required to change the firm's structure. Second, an organizational structure can remain, but the organizational culture can change if management changes how workers are assigned to roles in the same structure.

Change the Structure at All Levels

Taco Bell offers a good example of how changing the organizational structure at every level of the organization can lead to culture change. In a customer-servicedriven model, Taco Bell eliminated layers of management and changed the roles of managers at all levels. For example, a supervisor went from managing five or more stores in 1988 to 20 or more stores in 1991. Managers also focused on coaching and support.

Change Role Assignments

Another way to change the culture of an organization is to reassign technical specialists in existing departments. For example, you can decentralize the HR department and move an HR professional into each major department. As an HR expert, the professional could handle all affairs for the staff in that department in consultation with the manager.

Employee Involvement
Some management teams bring the need for culture change to workers, using a grassroots approach to changing the structure of the company. Managers might present the problem of wanting to make the company more responsive to the market's changing conditions and then use town hall meetings and other methods to get employee input for restructuring the company. This is a multidisciplinary approach, but it succeeds if employees change their attitudes by collaborating with management.

Strong Culture
A company with a strong organizational culture can effectively change its culture because its employees are responsive to their organizational structure. For example, if employees are highly committed to a work-team structure and their teams desire to shift the culture to focus on new products or services, they might follow the team. They will have to adjust to new ways that the company will organize itself and position itself in the market to be successful.

Roles of Organizational Structure

Organizational structure pertains to the way in which companies arrange their departments. Smaller companies tend to have flatter organizational structures with few management levels. Larger companies use tall organizational structures with many echelons of management and employees. Companies use several types of organizational structure for specific roles. For example, companies using a geographic organizational structure decentralize various functions like marketing because of varying regional needs.

Efficiency
One role of organizational structure is efficiency. Most companies need to make the most of various resources. Duplicating raw materials or job duties is wasteful and inefficient. Consequently, a company will structure its organizational according to products and services it offers. A small software manufacturer may use a customeroriented organizational structure because of its wide variety of customers. For example, the software company may sell to consumers, corporations, financial institutions, hospitals and health clubs. In this case, organizing departments by customers is efficient because of diversity. Product management duties may differ widely by customer type. Marketing to consumers is much different than targeting corporations.

Harnessing Experience
Another role of organizational structure is harnessing experience. Companies may arrange their companies by specific functions, such as marketing, accounting, finance and engineering. The purpose of grouping departments by function is to use the experience of groups to accomplish tasks and projects. A certain synergism exists when skilled employees of similar talents work together as a whole. For example, marketing and advertising managers can can better evaluate the potential success of a new product introduction as a group.

Decision Making
Organizational structure in a company also enhances decision making, according to Referenceforbusiness.com. Companies will often structure their organizations to make the best decisions possible. For example, a company may decentralize its marketing to make quicker decisions locally. Consequently, the company may put marketing

managers in one of four different regions. It is much easier for regional marketing managers to make local decisions about consumer needs than a marketing manager in a distant corporate office.

Communication
Companies also also use various organizational structures for communication purposes. Larger companies have many levels of management. Therefore, the most effective way to communicate is usually from the top of the organization down. Executives create certain operational procedures which they communicate to directors and managers. Managers, in turn, explain these operational procedures to subordinates or hourly employees.

Span of Control
Organizational structure is used for span of control. For example, a vice president of marketing may be in charge of four directors: One for marketing research, brand management, advertising and public relations. The directors may have three separate groups of managers reporting to them. Span of control pertains to the number of employees an executive or manager oversees. This reporting structure is how companies establish accountability.

What Is the Relationship Between Organizational Functions & Organizational Structure?

Your business's functions are the things it does -- production, sales, marketing, research and billing, for example. The organizational structure defines the relationship and interactions between the parts of your business, and identifies how the chain of command runs through the different levels. You can set up your business structure around your organizational functions, but even if you don't, function and structure will influence each other.

Functional Structure
Most businesses adopt a functional organizational structure: Different functions go into separate departments that report to department managers, who then report to someone higher up. If you adopt a functional structure, it has the advantage of clear lines of authority, and allows each employee to concentrate on her particular mission. The drawback is that you can end up with departments that don't talk to each other or cooperate well. A customer may get bounced from department to department if his problem doesn't relate to one particular function.

Divisional Structure
A divisional organizational structure spreads functions across different branches: If you have different product lines, the division for each product line has its own marketing, R&D, sales and accounting departments. The advantage of this approach is that each branch has the personnel to carry out all necessary functions. The drawback is that with employees in each division performing identical functions, you could end up with a lot of redundancy and inefficiency.

Matrix Structure
Using a matrix structure in your business can give you greater flexibility in business functions than a more hierarchical organization. In a matrix structure, each employee works in a function-based department, such as marketing or finance, but they can be assigned to projects under different managers and teamed with employees who have different functions. This structure adapts organizational function to changing organizational needs. The drawback is that the chain of command in a matrix may become cloudy and conflicted.

Organizational Charts
If you or your staff have trouble visualizing a proposed structure, you can use an organizational chart to see it clearly. The New York and Erie Railroad developed the first organizational charts in the 19th century as a way to improve management efficiency. A chart shows the lines of authority and control running between different departments and levels of management. A well-designed chart will make it easy to see who makes decisions, who reports to whom and how your organization divides up its operating functions.

Problems Implementing an Organizational Structure

An organizational structure allows information to flow to different parts of your business and becomes the framework for your entire organization. When you are trying to implement an organizational structure, you will face problems because initially there is no structure in place. You appreciate the importance of a strong organizational structure when you are working without one and trying to get one functional.

Communication
Part of the purpose of a strong organizational structure is to facilitate smooth communication within departments and from one department to another. When you are trying to implement an organizational structure, you are working with a makeshift communication network until the planned network is put in place. This can cause information to be dropped or miscommunicated at every level of the company.

Hierarchy
A company runs smoothly when it has a hierarchy to follow. While it can be easy to understand the basic hierarchy of the company from the owner or president down to the rest of the executive staff, the hierarchy among managers and supervisors is confused without an organizational structure. While you are implementing a company framework, you will come across instances when various managers or supervisors may take on authoritative roles they were not intended to have, which can cause confusion among the staff.

Delegation
When you are trying to implement a new organizational structure, it can be difficult to properly delegate responsibility to departments or individual employees. It may be confusing for employees and managers to understand their responsibilities when there was no official delegation in the past. Staff members have been doing what they needed to get the job done, and it will be difficult to move responsibilities around when implementing a new structure.

Cost
Implementing an organizational structure can be expensive. During the time it takes to get a structure in place, productivity will be affected and your company's ability to generate revenue will drop. Implementing structure means getting everyone on to the same software platforms for communication, bookkeeping, production and planning. Making sure everyone who needs a computer has one, and having all of the necessary software licenses, is also expensive. The planning time necessary to create the structure implement it costs you because your management staff is spending time on developing its part of the structure instead of making sure that company production numbers are achieved.

How to Change Organizational Structure

Organizational structure is the formal design of managerial hierarchies within a company, setting forth both reporting relationships and information flows. A company's organizational structure forms the base upon which operational policies are formed. Structure plays a large role in shaping organizational culture as well, and companies may find it necessary to change organizational structure to remain competitive or adapt to changes in the company, industry or marketplace.
Step 1

Involve employees from all levels of your organization in the planning stage. Solicit feedback from key front-line managers and employees to gain deeper insight into practical operational issues. Invite one or two influential front-line employees to participate in planning meetings. In addition to offering unique insights, these

employees can help to keep other employees informed of the planning process while spreading excitement about the change.
Step 2

Communicate planning progress across the organization regularly. Send companywide updates via email or your company newsletter to keep the change fresh in employees' minds for some time before the implementation phase. Avoid making employees feel blindsided by the change, especially if they are a target for downsizing.
Step 3

Explain thoroughly the reasons for the change, as well as the benefits that the change will afford to individual departments and employees. Hold at least two meetings to detail the change; one with departmental managers and one with your entire office or organization, if possible. Send out an email further describing the change and how it will affect employees at all levels of the organization. Use positive language as much as possible to emphasize the benefits of the change rather than the possible drawbacks.
Step 4

Lead by example in the change initiative and enlist your top-level managers to do the same. Publicly show your commitment to the change through your informal conversations and the time that you spend planning for and communicating the details of the change.
Step 5

Roll out the change one department at a time, if possible, to identify and address logistical issues early. Alter your change implementation plans if necessary after the first department is reorganized. Roll out subsequent changes rapidly to move the process along and minimize the change's short-term impact on overall productivity.

What Impacts Organizational Structure?

Organizational structure is the method by which an organization communicates, distributes responsibility and adapts to change. According to the Reference for Business, organizational structure is how a company utilizes its resources to achieve its goals. A company needs to keep its structure dynamic so that it can respond to the things that impact organizational structure. The company that can adapt is better able to survive.

Growth
A major factor that impacts organizational structure is company growth. As a company grows, the impact on the structure of the organization is significant. This can be especially true when the organization begins to expand to other geographic regions and the structure of the organization is spread out over many miles. A company may start out small, but, as time goes by, more employees may be hired, necessitating the introduction of departmental managers to help create a managerial structure. Additionally, an executive team may be required to run the various aspects of the business, and there may be the need for middle managers who would report to the managers.

Customer Needs
Customer service is important in business, so many companies have created entire divisions dedicated to customer service and retention. If a particular customer awards a large contract to your company, you may need to rearrange certain parts of your organization to accommodate the contract. For example, there may need to be an entire sales division created just for that customer and manufacturing may need to create a sub-process to build specialized products as well. As the needs of your customers shift, so to will the structure of your organization.

Technology
Technology can have an impact on how your organization is structured and how work flows. The Reference for Business points out that when computer networks became popular, it became easier for people to work as groups. People did not need to be in the same room, or even the same building, to be efficient. Technology can create positions within your company and it can eliminate positions. When filing is done electronically, there is no longer a need for as many file clerks as you once had but there is a need for a department of technicians to maintain and grow the computer network. As technology continues to change the function of jobs in the workplace, the landscape of organizational structure changes with it.

Resistance to Change in an Organization's Structure & Culture

Organizational culture and structure change is inevitable due to the constant change in technology, customer and markets, social and political pressures, as well as demographic characteristics. Resistance to change is an emotional and behavioral response by the affected employees to actual or imagined threats to an established work routine. Organizations must manage change and subsequent resistance to survive.

Fear of Failure
Intimidating structural and cultural changes on the worker can cause them to doubt their capabilities. This kind of self- doubt wears out self-confidence and undermines personal growth and development. The employees may oppose such changes without considering the potential benefits of the proposed changes, as a result. Low output might be realized before the employees finally adapt and learn to live with the changes.

Loss of Status
Structural and cultural changes that threaten to alter powerful positions or eliminate jobs generally trigger strong resistance. Corporate restructuring and reorganization may involve elimination of managerial jobs. Middle managers will resist restructuring and any other program that reduces their authority and the status they already enjoy in the organization.

Non-Reinforcing Reward System

Individuals resist when they do not foresee positive rewards for changing their work routines. Employees expect a positive improvement in their work in order to readily accept change. An employee is unlikely to support a change that is perceived as longer work hours and increased pressure to perform.

Incongruent Group Dynamics

Groups develop and enforce conformity to a set of norms that guide the members' behavior. However, conformity to existing group norms may discourage employees from accepting organizational change. Group norms that conflict with the desired changes need modification, while the structural and cultural norms that work to improve the organization need promotion.

Breaking Routines
People are creatures of habit and find it hard to abandon behavioral routines that the organization considers no longer appropriate. They like comfort zones by continuing routine role patterns. People hence resist structural and cultural changes that force them out of comfort zones and require investing more time and energy learning new role patterns.

Steps to Manage the Transition From the Old Organizational Structure to the New Structure
Organizational structure is a formal outline of the managerial reporting relationships and information flows within a company. A company's organizational structure is a

core component of its culture, and serves as a backbone for all operational activities. Because it is so deeply ingrained in organizations, a transition in organizational structure can present unique challenges to managers and business owners.

Preparing Employees
Gaining buy-in from employees at all levels of your organization is crucial to success in a transition as overarching as a change in organizational structure. Seek input from employees through formal feedback systems and informal conversations before beginning the planning process. Take employees' ideas seriously, and invite innovative idea-generators to participate in planning meetings. Clearly explain the need for the change in structure to all employees. Explain the need in terms that relate to each employees' individual roles, as well as how the change will benefit the organization as a whole. Also explain how the change will positively affect each employee and enhance their positions in the company. Send regular updates on the planning process to all employees via email, company newsletters, company meetings and informal conversations. Always be open to feedback when sending updates.

Planning And Implementation

Take the time to create thorough, formal plans to implement the transition from your old organizational structure to your new structure. Map out how physical workspaces and work groups will be moved or reorganized. Create plans to transition managerial information and duties among employees, and to ensure that all department-relevant information is preserved and reorganized according to the new structure. Implement the transition one step at a time rather than throwing the entire package into the works all at once. As an example, consider that you wish to transition from a tall organizational structure to a flatter structure where front-line employees are empowered to make managerial decisions. It would be a good idea to make the transition in one department at a time, first putting employees through training sessions to give them the information and skills required in their new roles, then formally moving line managers into other positions in the company.

Monitoring
Keep feedback mechanisms in place after implementing the transition. Rather than viewing the transition as a finished project, consider it a work in progress; use feedback from employees to fine-tune or alter specific aspects of the new structure. Allowing employees a voice after the transition can add uniqueness to the structure, bringing it closer to a structure that is best suited to maximize the efficiency and effectiveness of your operations while keeping employees satisfied.

How to Determine When & How to Institute Change in Organizational Structure

All companies must be willing to change, whether in response to operational problems or competition. Sometimes that change means altering your companys organizational structure. When changing your organizational structure, youll most likely either be looking to downsize or to increase your companys internal size. Involving your entire workforce will help to implement the change much more smoothly than if you take the reins by yourself.

Downsizing
Downsizing can refer to a company letting go of some of its employees or a company restructuring its organization so that it becomes less top heavy. Changing your organizations structure to appear smaller and more tight-knit doesnt require you to terminate anyone, but rather to restructure positions so that the company consists less of managers and more of nonmanagerial positions. Downsizing is usually required when a small business has too many decisionmakers and not enough people to employ the decisions. As a result, nothing substantial ever gets done and the company appears to be in neutral or even reverse. An example of downsizing is taking two company divisions and blending them together so that there is just one division.

Increasing Size
When a small business grows beyond its current capacity, it may need to change its structure to reflect that growth by increasing its size internally. If you find that both your managers and nonmanagerial employees are overwhelmed, an increase in size may be in order. You may need to create a new department, add new positions or increase the number of supervisors and managers currently employed. If you add more supervisors or managers, promote from within as much as possible. This shows your employees that they will be rewarded for hard work.

Suggestions
Changing your organizations structure is a major undertaking. For best results, consult high-performing managers, and ask your employees for suggestions. Doing so will accomplish two things: youll have more suggestions than you could possibly think of on your own, and youll make your workforce feel as though theyre playing a part in a major event in the companys history. Conduct multiple meetings and think of a thorough list of pros and cons to each structure change that youre considering. The planning stage will largely affect the outcome of the structure change.

Goals
Before overhauling your companys organizational structure, determine what you want to accomplish by doing so. Creating a list of goals enables you to understand exactly why you need to initiate a structure change, and if the structure change is successful after you implement it. An example of a goal could be to improve the efficiency of making a product by 25 percent.

Responsibilities
Both before and after initiating a change in organizational structure, explain the new responsibilities your employees will be expected to take on. If positions changed, new positions were added or employees were promoted or demoted, a thorough explanation of what they're expected to do is necessary.

Six Elements of Organizational Structure

Organizational structure determines corporate communication, and the executive and managerial hierarchy, and creates a plan for efficient growth for the future. The six elements of organizational structure come together to create the blueprint for how your company is laid out, and determine how your managerial staff goes about effecting change in your organization.

Geography
How your organization is structured can depend on how many corporate locations you need to account for in your planning. The more spread out an organization is, the more autonomy each location will need to be given in order for the company to run efficiently. Hierarchy communication is also a challenge when creating an organizational structure over a large geographic area. Managers who report to executives in another location need to establish a clear line of communication in order to receive guidance and instruction.

Number of Employees
A large employee population can necessitate that there be several layers of management for a company to run efficiently. As a company grows, the organizational structure needs to be elastic enough to accommodate more employees and the potential need for a larger management structure.

Product Evolution
A company may start off with a small line of products that cover a general part of the industry. As the company grows, the need to create specified departments for product development and manufacturing can have an effect on the company's organizational structure.

Distribution of Authority
According to a study done by a group of college students known as Group A-Plus, a company's organizational structure is affected by whether the company wants centralized management or decentralized management. Centralized management keeps all major decisions with one specific executive group, while decentralized

management allows company managers to have more say in the decision-making process.

Control
According to Management Guru, a company that requires a higher product quality will have stricter rules and a more regimented environment. This would apply to companies that manufacturer high tech products, hand-crafted products or critical products such as medical equipment. Companies that engage in the mass production of products may not exert as much control over the quality of their products and, subsequently, may create a different organizational structure.

Marketplace
The marketplace also has a bearing on how a company is structured. For example, a manufacturer may decide to sell products through wholesalers as well as directly to end users. In order for this model to be successful, the organizational structure of the company would need to be set up so as to keep these elements separate, including a separate marketing team and a separate sales force.

Organizational Behavior Practices That Foster Positive Change in the Workplace

Understanding organizational behavior is integral to success in business. Sheila K. McGinnis, of Jones and Bartlett Publishers, states that organizational behavior is any type of behavior resulting from the structure and culture of the organization. Managers can influence organizational behavior and foster positive change. For instance, education programs that show employees how to solve problems within the organization is one way to improve their performance through organizational behavior modification.

Planning
No lasting positive change ever comes without some advance planning. Ronald Kirk Kandt of NASA's Jet Propulsion Laboratory states that organizations need to plan for change by minimizing risk and maximizing return. Companies should conduct research to identify barriers to positive change in the workplace, so they can eliminate potential obstacles from the outset. For instance, McGinnis states that workshops that help employees identify their own biases about other coworkers can eliminate misunderstanding and open up communication.

Feedback
Most companies and organizations use an evaluation system to ensure that workers are meeting necessary job standards. However, having a yearly evaluation does little

to foster ongoing positive change. Instead, having a positive feedback system in place will result in greater motivation and change. Employees who are trained to focus on the positive aspects of their own behavior will think and focus on positive change, rather than what they are doing wrong.

Group Thinking
In some workplace settings, such as the healthcare industry, collective knowledge is important. Sheila K. McGinnis makes this argument and adds that it's also important for professional healthcare workers to be united by a common purpose. In many instances the margin for error is minimal. Workers united by a common identity and purpose must be reminded of this shared identity on a regular basis. Other industries can learn from this example as well. Workers who share a common identity and purpose will be more likely to unite and implement positive change.

Measuring Change
Organizations can also measure change in a number of different ways. For instance, companies can create surveys that measure the willingness of employees to change certain behaviors or organizational practices. By the same token, the effectiveness of that change can be measured by evaluating the opinions of employees once changes have been implemented. Through a process of constant testing and evaluation, organizations can foster a climate of change by utilizing employee input.

Principles of Organizational Structure

Organizational structure is the framework by which a company communicates, develops goals and then works on achieving those goals. Within the framework of organizational structure are the principles by which that structure operates. The principles of organizational structure are the methods by which the organization maintains that structure, and the processes it uses to keep the structure efficient.

Hierarchy of Command
One of the principles that holds an organizational structure together is the hierarchy of command. Respect for the authority of management and the executive team creates a functional line of communication. Instructions and decrees given by the upper echelon are validated by the belief in the hierarchy structure of the organization. Everyone in the company can follow the trail of responsibility for projects, and employees understand who they report to and how the management structure affects their jobs.

Role Definition
According to the University of York in York, England, an efficient organizational structure helps to properly define everyone's role within the company. A clear definition of the responsibilities and standing of each person within the company creates an understanding of what is expected from each individual, and how individual performance can affect the efficiency of the entire organization.

Evaluating Outcomes
The RAND Corporation points out that monitoring the outcome of individual projects, as well as the ongoing performance evaluation of individual employees, helps to determine the strengths and weaknesses in the organizational structure. The weaknesses can be dealt with either through training, reallocation of company assets such as equipment, or eliminating ineffective employees or those performing duplicate tasks. The strengths of the organization can be amplified to help identify future managers of the company, determine successful processes that can be used in future projects, and improve the processes used to reach future company goals.

Altering Organizational Structure

One of the key principles of organizational structure is the ability to remain dynamic and change to suit the needs of the company. Some of the elements that necessitate change in an organizational structure include changing customer needs, a change in company management, new technology, and reacting to the activities of your competition.